Landlord risk management: 5 tips to avoid rental property lawsuits

By Higginbotham on August 15 , 2017

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Rental property owners must manage a host of risks to protect their investment. It can seem like juggling a handful of ticking time bombs. From tenant lawsuits to property damage to potentially costly environmental claims, there are plenty of hazards that can put your business and personal assets at risk.

That’s why you need to use every tool at your disposal to defuse those potentially explosive hazards. The good news is, protecting yourself doesn’t take a big investment. It just takes a little planning and common sense.

Here's five risk management tips to help you avoid rental property lawsuits:

  1. Provide a safe living environment. As a landlord, you have a duty of "due care" to take reasonable steps to protect your tenants from foreseeable danger, and an "implied warranty of habitability" says you must provide them with a unit that’s fit and habitable to live in. Legal jargon aside, your tenants’ safety and comfort should be your top priority. That means regular inspections and maintenance, being responsive to your tenants’ concerns about security and repairs, and guarding against criminal behavior by your tenants or others coming onto the property. That also means mitigating environmental hazards like lead-based paint, asbestos, mold and carbon monoxide. And make sure you’re compliant with all state and local health, building and safety codes.
  2. Screen potential tenants and employees. You should always carefully screen potential tenants for income, credit history, criminal record and negative references from previous landlords. When you need to hire help, conduct thorough background checks on potential employees, and make sure you properly classify assistants as either employees or independent contractors to avoid incendiary workers’ compensation or tax issues. If you hire contractors, have a written contract that clearly spells out the duties of each party, and make sure your contractors carry their own liability insurance.
  3. Avoid Fair Housing infractions. State and federal laws prohibit you from using discriminatory practices when choosing tenants, such as discrimination based on race, skin color, sex, religion, disability, or familial status. You can only reject tenants for legitimate reasons, including insufficient income, bad credit history or a negative reference from a previous landlord. You’re also required to make your property and rental units accessible to disabled tenants and comply with requests to accommodate them with reasonable modifications. The last thing you need is a costly civil rights lawsuit.
  4. Keep the tax man happy. Keep well-organized and accurate records to avoid an audit and maximize your tax deductions. To limit your personal liability and protect your personal assets, you should consider creating a separate business entity to hold the title to your rental property. Consulting with a tax attorney or CPA can help you stay on track.
  5. Protect yourself with the right insurance. If the unthinkable happens, you need to be prepared. At minimum, you should carry property and casualty, general liability and landlord liability coverage. Other coverages worth considering include personal liability coverage and an umbrella policy to enhance your landlord liability coverage in case you’re hit with a large claim. Don’t wait until the fireworks start to find out if you’re adequately protected.

Be proactive about mitigating your risks so you can avoid putting out fires later. For more advice on defusing these and other volatile risks, visit our real estate insurance page and contact the business insurance experts at Higginbotham Insurance.


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